Problem 20-6 Requirement 1 A change in depreciation method is considered a change in accounting estimate resulting from a change in accounting principle. In other words, a change in the depreciation method is similar to changing the economic useful life of a depreciable asset, and therefore the two events should be reported the same way. Accordingly, Faulkner reports the change prospectively; previous financial statements are not revised. Instead, the company simply employs the straight-line method from then on. The undepreciated cost remaining at the time of the change would be depreciated straight-line over the remaining useful life. Asset’s cost $21,000 Accumulated depreciation (SYD) to date (given) (6,909 ) Undepreciated cost, Jan. 1, 2009 $14,091 Estimated residual value (1,000 ) To be depreciated over remaining 8 years $13,091 8 years Annual straight-line depreciation 2009-13 $ 1,636 Adjusting entry (2009 depreciation): Depreciation expense (calculated above). ..................................... 1636 Accumulated depreciation. ................................................... 1636 A disclosure note should justify that the change is preferable and describe the effect of a change on any financial statement line items and per share amounts affected for all periods reported.

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